Crypto and taxes

What happens when your cryptocurrency transactions are audited by the IRS?

Yes, US taxpayers are generally required to report cryptocurrency activity on their taxes if they've earned crypto as income or have disposed of crypto. The IRS mandates that every crypto sale, trade, swap, or disposal be reported, classifying cryptocurrencies as property. Crypto and taxes You don’t have to pay taxes on crypto if you don’t sell or dispose of it. If you’re holding onto crypto that has gone up in value, you have an unrealized gain. This is non-taxable unless you have trader tax status. Once you sell, trade, swap, or otherwise dispose of the crypto, then you’ll have a taxable event.

Taxes crypto

Unfortunately, you cannot claim a theft deduction since casualty and theft losses were disallowed under the Tax Cuts and Jobs act on the lost tokens, but you may be able to claim a capital loss. The capital loss could be available as a nonbusiness bad debt made to the exchange and would be a capital loss up to the cost basis of the lost assets. It is important to accurately calculate the amount of tokens available before the account was closed to assess the total capital loss. Another option that might be available is if the loss occurred due to a Ponzi scheme, in this case the IRS has specific rules that may allow for ponzi deductions. Please contact a tax professional to discuss the options that might be available. What is Cryptocurrency? Starting in 2020, the IRS added a question to the personal federal income tax form (1040) asking taxpayers, “at any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?”

Use crypto tax software to calculate your gains and losses

Buying cryptocurrency is not a taxable event if there are no additional transactions using the cryptocurrency -- even if the token value increases. Taxes are due only when a person sells, trades or uses cryptocurrency as a method of payment. How to calculate capital gains on crypto We believe everyone should be able to make financial decisions with confidence. And while our site doesn’t feature every company or financial product available on the market, we’re proud that the guidance we offer, the information we provide and the tools we create are objective, independent, straightforward — and free.

Tax on cryptocurrency

While complete avoidance of cryptocurrency taxes is not feasible for most taxpayers, there are legal strategies to reduce tax obligations. These include tax loss harvesting, using specialized cryptocurrency tax software, making donations, prioritizing long-term capital gains, and strategically executing sales during years of reduced income. Additionally, exploring crypto tax-friendly regions may be a viable long-term strategy for serious investors. Cryptocurrency information reporting requirements You can email the site owner to let them know you were blocked. Please include what you were doing when this page came up and the Cloudflare Ray ID found at the bottom of this page.